House subcommittee hears evidence of violations, cover-up attempts

There have been serious violations of ethical, lobbying and hiring violations at the Department of Housing & Urban Development, and senior HUD officials have been involved in efforts to cover it up.

In another shocking incident, investigations revealed the hiring of convicted criminals into key housing positions.

That’s the testimony of David Montoya, Inspector General of HUD, and Edda Emmanuelli Perez, Managing Associate General at the Government Accountability Office before the House Oversight and Investigations Subcommittee.

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The findings involve instances of illegal lobbying and multiple instances of ethical violations and hiring violations, including the hiring of a housing industry insider put in charge of regulatory reform while holding a position with a housing industry group. The allegations involve incidents going back to 2013.

“Our investigation of HUD lobbying activities concluded that HUD appeared to have violated anti-lobbying riders contained in the Consolidated Appropriations Act, 2012, and in the Consolidated and Further Continuing Appropriations Act, 2013,” Montoya said. “The riders included language that restricted the use of appropriated funds for publicity or propaganda purposes directed at legislation pending before Congress.”

A HUD spokesperson told HousingWire that HUD and its new secretary are committed to reforming these problems.

Notably, the bulk of the alleged violations took place before the confirmation of Julián Castro as HUD secretary six months ago.

“HUD is committed to employee accountability. We’re continually working on improving accountability and in each of the instances of misconduct referenced in today’s hearing, the Department took action. HUD reviewed its policies and often implemented new policy and procedures to ensure that the misconduct will not be repeated,” the spokesperson said. “For example, on IPAs, the Department’s Office of General Counsel now reviews all temporary assignments of non-Federal employees for conflicts of interest.

“Additionally, in his first month at HUD, Secretary Castro sent a joint letter with HUD’s Inspector General to all HUD employees reinforcing their commitment to making the agency a better place to work by enhancing the integrity, efficiency and effectiveness of all our programs and operations,” the spokesperson said. “The vast majority of HUD’s 8,500 employees are hardworking, ethical and dedicated civil servants. The misbehavior of a small group of employees erodes the American people’s trust in their government and tarnishes the reputation of HUD’s hardworking employees. These employees have dedicated their careers to serving families and individuals across the country to help them access opportunities to improve their lives.”

Rep. Sean Duffy, R-Wisc., the subcommittee’s chairman who called today’s hearing, recalled last year’s HUD inspector general report. “At the time, I found those revelations troubling, but I had hoped we could chalk it up to a few bad apples at HUD. But we’re back here today to discuss what happened with those so called 'bad apples' because of other, completely unrelated allegations that have surfaced."

Witnesses at the Subcommittee today offered testimony about the following alleged legal and ethical violations at HUD:

HUD’s Inspector General recently found that senior HUD employees violated federal employment law practices and HUD policies by hiring former registered lobbyist Debra Gross within HUD’s Office of Public and Indian Housing. Ms. Gross improperly used her position at HUD to champion an agenda favorable to the public housing authorities represented by her former employer. Ms. Gross also acted outside her authority by hiring two HUD employees without proper vetting.

HUD’s Inspector General concluded that Ms. Gross and her two hires “provided false statements to investigators” related to their “HUD hiring and communications regarding the hiring” while under oath during interviews. Although Ms. Gross denied “pre-employment email communication” with key HUD officials, she ultimately admitted to having had “extensive communications.” The two employees hired by Ms. Gross were “less than forthcoming” about the nature of their hiring, although they both “stated that they were never interviewed during the hiring process.”

HUD’s Inspector General separately confirmed that then-Deputy Secretary Maurice Jones, along with four other senior HUD officials, violated HUD administrative policies in connection with preparing and transmitting a July 31, 2013 e-mail requesting that 1,000 recipients lobby specified Senators regarding a pending appropriations bill. The GAO subsequently concluded that HUD violated federal anti-lobbying laws by disseminating this email. The U.S. Office of Special Counsel is currently determining whether any prohibited personnel practices were committed

Individuals at HUD also attempted to obstruct the anti-lobbying investigation and improperly influence other witnesses. Elliot Mincberg -- then Acting General Deputy Assistant Secretary for HUD’s Congressional and Intergovernmental Relations unit -- inserted himself into an ongoing witness interview, inappropriately contacted employees of HUD’s Office of General Counsel before their interviews, threatened HUD inspector general investigators that they would be “charged as a result of their inappropriate actions,” and was not forthcoming about his involvement in the dissemination of the July 31 e-mail communication.

Montoya was the focus for much of the committee's questioning. He said that there was an institutional breakdown in HUD’s policies.

“While our investigation did not result in criminal prosecution, it did discern an institutional failure to follow HUD’s own existing internal policies. There were breakdowns in communication and in responsibility and a failure to adhere to existing policies and procedures. This led to placing the Department and its second highest ranking official, the former Deputy Secretary, into an embarrassing situation, one that leaves an impression of lapses in judgment and in ethical decision-making. HUD officials changed existing policies, in the midst of the OIG investigation, in an attempt to legitimize their actions and impeded our investigation by withholding information and threatening the HUD-OIG investigating agents.

Little was done about these findings by HUD previously, he said.

“In response to our report of investigation, HUD took no formal disciplinary action. Elliott Mincberg resigned from his HUD position in April 2014 and Peter Constantine was verbally reprimanded,” Montoya said. “As I stated then, the series of events in that case illustrated what can happen when senior government officials veer from the course of ethical decision-making, skirt the edges, and act in a manner that is not in the government’s best interest. I am here today to state that, unfortunately, we have encountered other examples of senior officials bending the rules and engaging in outright misconduct, sometimes with minimal risk that HUD will take appropriate action when it learns of the misconduct. In addition to our lobbying investigation, I will discuss the results of some of our recent investigative and auditing work as it relates to HUD’s improper use of the IPA Mobility Program as well as employee misconduct cases.”

On the issue of hiring, the biggest issue was that HUD used its IPA program to appoint Debra Gross, the Council of Large Public Housing Authorities’ deputy director as HUD’s Deputy Assistant Secretary.

“In doing so, former PIH Assistant Secretary Sandra Henriquez (previously head of the CLPHA organization) created an inherent conflict of interest because she placed the deputy director of an industry group in charge of PIH’s policy-making division, the division responsible for developing and coordinating the regulations applicable to the entities that CLPHA represents. In essence, HUD appointed someone who represented the regulated to be in charge of developing the regulations,” he said.

Montoya said that HUD’s lack of oversight in the IPA agreement process allowed this inherent conflict of interest to occur without prior ethical review by HUD’s Office of General Counsel.

“In her HUD policy-making role, it appeared that Gross championed the public housing industry’s regulation relief agenda at HUD while she retained her position at CLPHA. Also, apparent lobbying efforts by CLPHA and other housing industry groups during this period complicated the matter. Due to the inherent conflict of interest, and HUD’s failure to recognize and mitigate it, HUD cannot know whether the policy decisions enacted during the deputy director’s (Gross) tenure were inappropriately influenced or in the best interest of HUD and all of its stakeholders,” Montoya said.

The investigation also determined that Henriquez, and Deborah Hernandez, former General Deputy Assistant Secretary, PIH may have committed prohibited personnel practices and circumvented established hiring practices when they entered into an IPA agreement with CLPHA for its employee, Gross, to serve in the position of DAS.

Montoya listed other HUD hires were troubling, but not prosecuted. Among the worse includes one who was hired despite a 1980 armed robbery conviction and multiple theft, embezzlement and larceny arrests, as well as other instances of bribery and nepotism in upper management.

Brian E. Thompson, a former HUD loan guarantee specialist, pled guilty to a charge of wire fraud stemming from a scheme in which he stole $843,000 of government money. This scheme was carried out from May 2013 until March 2014, while Thompson worked for HUD-PIH’s Office of Loan Guarantee for Native American programs. This office administers the Section 184 loan guarantee program which provides access to private mortgage financing for Indian families, Indian housing authorities (IHAs), and Indian tribes that could not otherwise acquire housing financing because of the unique legal status of Indian lands. The loans guaranteed under the program are used to construct, acquire, refinance, or rehabilitate single family housing located on trust land or land located in an Indian or Alaska Native area.

If a Native homeowner defaults on the mortgage and a lender forecloses on the property, HUD manages and disposes of real estate owned (REO) properties. As a loan guarantee specialist, Thompson’s duties included handling the reselling of these properties for the best possible price in order to reimburse the government for the payments made to the mortgage lender for the defaulted insured loan.

Thompson sold parcels of these REO properties. On five of those parcels, he made materially false misrepresentations to third parties and diverted $843,000 of the sales proceeds to bank accounts under his control. In order to conceal these thefts from HUD, he used and submitted fictitious settlement statements that falsely listed the buyer, the contract sales prices, and the seller proceeds.

On October 2, 2014, Thompson pled guilty to one count of wire fraud and, as set forth in his plea agreement, immediately paid $197,700 in restitution to HUD. He was subsequently sentenced to 26 months in prison followed by 36 months supervised release. The plea agreement also called for Thompson to pay $843,000 in restitution to the federal government and a forfeiture money judgment in the amount of $645,700.

HUD-OIG submitted judicial documentation relating to Thompson’s guilty plea to HUD officials in order for them to pursue administrative action. On November 20, 2014, Thompson resigned as a HUD employee.

Of note, and particularly troubling, was the fact that HUD hired Thompson as a GS-13 loan guarantee specialist in May 2011, even with theft and larceny arrests and convictions spanning from 1984 to 2007. Thompson also had an armed robbery conviction in 1980 that resulted in probation; a 1998 misdemeanor conviction for check deception; a felony 2008 conviction for receiving stolen property; and probation violation reports filed in 1999, 2000 and 2001.

Clearly HUD needs to assess its process for conducting background investigations for prospective employees, particularly for positions of trust such as Thompson’s. Separate from the Thompson matter, on January 17, 2013, HUD-OIG submitted a Systemic Implication Report to HUD identifying weaknesses within the personnel security and suitability program. Specifically, a HUD employee was hired shortly after being criminally charged by federal indictment with mortgage fraud. During the hiring process there were no policies, procedures, management, and oversight to ensure the employee was effectively vetted before hiring. We recommended that new policies, procedures, and regulations be developed and implemented to prevent this from occurring during initial hires and for re-investigations of current employees.

A HUD-OIG investigation in HUD’s Office of Chief Human Capital Officer determined that the former Chief Human Capital Officer Janie Payne and other senior HUD officials committed prohibited personnel practices by engaging in nepotism. In the case of Payne, while she did not hire relatives to work directly for her office, she advocated for the hiring of two of her close relatives for positions within HUD’s Office of the Chief Information Officer (OCIO). Payne also misused her position by having a HUD employee draft and forward her husband’s resume to another federal agency. This violated federal regulations regarding use of official time as well as HUD administrative guidelines relating to using government employees in duty status for other than official purposes.

Karen Jackson, HUD’s former Deputy Chief Human Capital Officer also committed nepotism by advocating the hiring of a close relative. Jackson did not hire the relative to work directly for her but, advocated for the hiring of her relative to a management analyst position with HUD’s Office of Housing. Jackson previously worked with the Office of Housing’s selecting official at another agency. The selecting official placed a vacancy announcement on USAJOBS for the management analyst position for which he encouraged Jackson’s relative to apply. HUD-OIG investigators discovered that Jackson’s relative was initially determined to not be qualified for the position. The selecting official then requested a second review. Based on this second review by another human resource specialist, Jackson’s relative was deemed qualified for the position and was subsequently hired at HUD. The human resource specialist who initially reviewed the application maintains that Jackson’s relative was not qualified for the position. The final selecting official admitted that he has had a personal relationship with Jackson and her family for over 20 years.

Allison Hopkins, HUD’s former Director of Human Resources also committed nepotism by advocating the hiring of her husband as an information technology (IT) specialist within HUD’s OCIO. The individual was hired at HUD via a lateral transfer from another federal agency. Prior to the transfer, however, HUD had posted a vacancy announcement for the same IT specialist position. The selecting official for the position had received a certificate of eligible candidates, conducted interviews and selected a qualified candidate. The selecting official submitted her selection and was subsequently informed that the hiring action was not going to be completed and that management was going to do something else with that position. HUD-OIG’s review disclosed that the vacancy certificate that was signed by the selecting official was altered to reflect that no one was selected for the position. It was also noted that an OCIO official requested the cancellation of the vacancy certificate and announcement based on management’s request. The OCIO official admitted that she altered the certificate because she did not want HUD’s human resource office to inadvertently extend an offer for the cancelled vacancy.

Jackie Mercer-Hollie, HUD’s former Assistant Director of Human Resources also committed nepotism by advocating the hiring of her husband, as an IT specialist within HUD’s OCIO. The HUD-OIG investigation also determined that Mercer-Hollie’s husband received preferential treatment and was pre-selected for this position. The position announcement closed on a Thursday, the certification was issued and the selection was made on a Friday, and Mercer-Hollie’s husband reported for work on the following Monday. Although it appears that all the rules and regulations were technically followed (announcement, certification, and selection), HUD-OIG obtained evidence (interviews and e-mails) indicating that Mercer-Hollie’s husband was aware he was being hired at HUD prior to the selection and was given preferential treatment.

The investigation also determined that Mercer-Hollie also used her public office for private gain. Mercer-Hollie contacted a HUD contractor, who assisted her husband in obtaining a position with that contractor prior to his being hired at HUD. E-mails clearly show that the contractor (who is the nephew of Karen Jackson referenced earlier) hired Mercer-Hollie’s husband as a “favor” because his wife was a “high official at HUD,” and the position was short term because Mercer-Hollie’s husband would soon be hired by HUD. An e-mail was discovered from Mercer-Hollie to Jackson in which Mercer-Hollie wrote, “Thanks for being my angel and contacting your nephew to facilitate getting my husband a job.”

The results of our investigation were coordinated with DOJ. DOJ was presented with the facts and circumstances surrounding the investigations involving the alleged nepotism and prohibited personnel practices by HUD employees, including members of the Senior Executive Service (SES). DOJ was also made aware of the possible obstruction of this investigation by Payne. Based on the information provided, DOJ declined criminal prosecution, stating the information presented did not meet the criteria for a conflict of interest prosecution in the District of Columbia.

?Charles Hester, former Director, of HUD’s Office Multifamily Housing in St. Louis, Missouri, accepted four payments totaling $38,000 from a multifamily project owner to facilitate and approve a Federal Housing Administration (FHA) Insured Multifamily loan. The initial loan was in the amount of $1.39 million, which was amended and increased by Hester to $1.5 million; a month later he received a $15,000 cashier’s check from the owners. The investigation determined that after a private lender failed to approve a loan for the project, Hester facilitated the underwriting and processing of the FHA-insured loan. Hester directed HUD staff to sign certain loan documents and he approved a waiver allowing the use of letters of credit in lieu of a cash down payment. Hester also facilitated the waiver of certain property inspections (thereby allowing for the first construction draw to be paid to the owners). The owners, in turn, provided a portion of the proceeds back to Hester. Hester subsequently deposited these funds into his personal checking account and spent them on personal expenses, including an investment property.

Hester was interviewed by HUD-OIG investigators where he admitted to receiving money from the owners, but denied committing any crimes. On the same day, Hester was placed on administrative leave by HUD. Hester never came back to work and subsequently retired effective November 2011. In April 2012, Hester was indicted for Conspiracy to Solicit and Accept an Illegal Gratuity and False Statements. He pled guilty to conspiracy to provide and accept an illegal gratuity and was sentenced to 18 months incarceration followed by 24 months of supervised release. The owners also pled guilty to various offenses, were imprisoned and were debarred from participation in procurement and non-procurement transactions as a participant or principal with HUD and throughout the executive branch of federal government for a period of 36 months.

Perez’s testimony focused primarily on the illegal lobbying issue, but mirrored much of Montoya’s.

“In the opinion (of the GAO), we determined that HUD violated an appropriations provision prohibiting the use of appropriated funds for indirect or grassroots lobbying in support of or in opposition to pending legislation. Because no funds were available for such purpose, HUD’s actions also violated the Antideficiency Act, a fiscal statute central to Congress’s constitutional power of the purse,” she said.

Representative McHenry expressed concern about an e-mail sent by the Deputy Secretary of HUD to “friends and colleagues” on July 31, 2013. He asked GAO whether HUD violated any anti-lobbying provisions by transmitting the e-mail.

“We learned that the e-mail in question transmitted by the Deputy Secretary of HUD requested that recipients contact 17 named senators in support of the Senate’s version of the Department of Transportation, HUD, and Related Agencies appropriations bill for fiscal year 2014, which was pending in the Senate at the time,” Perez said. “The e-mail emphatically urged recipients to encourage the senators to vote in favor of procedural motions to advance consideration of the bill, to oppose specific amendments HUD considered harmful to the bill, and to vote in support of the bill itself. Among the over 1000 recipients of the Deputy

Secretary’s e-mail, were individuals from organizations that have engaged with HUD on housing issues, whose contact information HUD retained in the ordinary course of its work.

“We concluded that HUD violated section 716 by preparing and transmitting the e-mail. The appropriations provision prohibits indirect or grassroots lobbying urging support or opposition of legislation pending before Congress. Therefore, the provision is violated when there is evidence of a clear appeal by an agency to the public to contact Members of Congress in support of or in opposition to pending legislation. Here, the Deputy Secretary’s e-mail made several clear appeals to the public to contact Members of Congress regarding HUD’s pending appropriations bill,” Perez said.

Trey Garrison was a Senior Financial Reporter for HousingWire.com. Trey served as real estate editor for the Dallas Business Journal, and was one of the founding editors of D CEO Magazine. He has been an editor for D Magazine — considered among the best city magazines in the United States — and a contributor for Reason magazine.